Turners (TNR) bonds

[Grimy]

Thanks for your analysis Snoopy. I probably won't be investing in these bonds. But more because I'm building cash at the moment (will be greatly helped by AIR tomorrow) for future investments, rather than anything against the Turners bonds.

[Snoopy]

Thanks for your analysis Snoopy. I probably won't be investing in these bonds. But more because I'm building cash at the moment (will be greatly helped by AIR tomorrow) for future investments, rather than anything against the Turners bonds.

I should put the comments on my assessment of Turners bonds in context. I am a long term investor. So if the share price of TNR was lower in two years time than now, this would not worry me. If you wanted to definitely spend your invested capital in two years, then the TNRHB bond issue has more merit.

As a long term investor I hope for long term capital gain, as the dividend flow increases. But I accept the risk of capital loss is there, albeit reducing the longer your investment time horizon. My big issue with particularly New Zealand market bonds, is that the interest offered is sometimes less than the dividend yield from shares in the same company. In theory should a company get into trouble, the shareholders lose their capital before the bondholders. In practice, I cannot remember a company on the NZX that got into trouble where the shareholders lost their money, but the bondholders got all their capital back. So as a bondholder if you

1/ Get the same after tax income as a shareholder. AND
2/ Give up your right to capital appreciation AND
3/ Retain your right to lose your capital shoudl the company get into trouble.

THEN why would you do it? For this reason my preference is always to invest in utility type shares instead of bonds, for the New Zealand market (where high dividend yields are common) at least.

SNOOPY

[Snoopy]

So as a bondholder if you

1/ Get the same after tax income as a shareholder. AND
2/ Give up your right to capital appreciation AND
3/ Retain your right to lose your capital shoudl the company get into trouble.

THEN why would you do it?

I got a follow up note in the mail yesterday from Turners, reminding me about the TNRHB bond offer which closes at noon on Friday.

What a contrast to the original 'under the radar' TNRHA bond offer. In that, Turners claimed there were no plans to list theTNRHA bonds. Further, bondholders should therefore plan to be in until maturity. At the time Dorchester were really gunning for the old Turners Auctions shareholders to accept Dorchester shares, not what turned into TNRHA bonds as consideration for handing over their TUA shares! Subsequent to Dorchester morphing into the new Turners, the TNRHA bonds were of course listed - although liquidity was never good. Not sure how much of that was because at the time of TNRHA conception, bondholders were told they would have difficulty selling, so they never tried? Nominally TNRHA bonds were available to the general public. But the terms were so good and the scaling so skewed towards TUA shareholders, I don't think any investor not already inside the Turners tent got a look in.

Now we have TNRHB bonds and the public are once again invited to participate. With terms no longer being so good, maybe this time the wider investing public will get a look in? If that improves liquidity in the new bonds, that will be fine by me. I see a couple of brokers have now commenced coverage of TNR shares. I am curious if any brokers out there are promoting the TNR bonds!

SNOOPY

[peat]

With respect to the share placement that Turners have now completed in the last few days I have checked the PDS of the bond issue and it says

"the terms of Conversion will be adjusted to ensure Bondholders arenot adversely impacted by any dilution."

[winner69]

With respect to the share placement that Turners have now completed in the last few days I have checked the PDS of the bond issue and it says

"the terms of Conversion will be adjusted to ensure Bondholders arenot adversely impacted by any dilution."

Thanks Peat ...so the $3.75/$3.95 should be less .....if it comes into play as the minimum

[Snoopy]

Thanks Peat ...so the $3.75/$3.95 should be less .....if it comes into play as the minimum

IIRC the bond conversion terms are 'market price less 5%'. Issuing more shares theoretically lowers the market price per share. But the discount remains at 5% from the new market price. So I don't believe the bondholders will be disadvantaged by the latest placement and SPP. Consequently I don't expect any change to the conversion terms of the bonds.

SNOOPY

[Beagle]

IIRC the bond conversion terms are 'market price less 5%'. Issuing more shares theoretically lowers the market price per share. But the discount remains at 5% from the new market price. So I don't believe the bondholders will be disadvantaged by the latest placement and SPP. Consequently I don't expect any change to the conversion terms of the bonds.

SNOOPY

At anything above $3.95 bondholders stand to have their shares issued at a bigger than 5% discount, i.e. the lower of $3.75 or a 5% discount to VWAP.
The chances of the shares being higher than $3.95 at the time of conversion have been diluted by this issue so bondholders have indeed been disadvantaged BUT I do not expect the company directors to see it that way. They really are not interested in looking after the interests of small bondholders and shareholders. Anything that funds their growth ambitions and favor larger shareholders in friendly rights issues, no problem for them though. It's looking likely I will simply ask for my cash back at the conclusion of the bond as its quite clear that a $25m capital raise, (which is what a bond conversion ostensibly is) affects the SP going by the SP performance this week. What I am suggesting to be clear is a 5% share conversion discount is insufficient on an illiquid thinly traded share, (market evidence this week shows that a 10% discount is required to raise new capital) with a short track record of profitability. I regret investing in the bonds but will hold to maturity rather than taking a loss now...unless someone wants to offer me $1.05 per bond including accrued interest for the Sept quarter, please PM me.

[Snoopy]

At anything above $3.95 bondholders stand to have their shares issued at a bigger than 5% discount, i.e. the lower of $3.75 or a 5% discount to VWAP.
The chances of the shares being higher than $3.95 at the time of conversion have been diluted by this issue so bondholders have indeed been disadvantaged BUT I do not expect the company directors to see it that way.

I managed to digest my Share Purchase Plan prospectus yesterday. The entitlement for bondholders is determined by taking the dollar value of the bonds and dividing that by $3.75, thus generating an 'equivalent shareholding' for SPP purchase purposes. As you suspected Beagle, this $3.75 price is unchanged from the bond prospectus dated 22nd August 2016. Except in the bond prospectus, the conversion terms for next year stipulate a $3.75 maximum conversion price, and a lesser price should the TRA share price be below $3.90 at conversion date. Clearly issuing a whole lot more shares at $3.02 today means it is less likely that the share price will be above $3.90 in a year's time. So I think bondholders have lost out here, despite this 'out' below, quoted from p17 of the Bond Prospectus.

"Turners may issue further Shares from time to time before the Maturity Date of the Bonds, which may negatively affect the Share price. This may reduce the value Bondholders receive on Conversion (but subject to the minimum provided by the discounted approach)."

"The minimum provided by the discounted approach" refers to the minimum 5% discount on new shares issue at maturity that will increase if the share price goes above $3.95 by conversion date. But bondholders would get this discount whether the SPP and placement happened or not. So I think it would be clear to an independent observer that bondholders will be disadvantaged at conversion time, even if they (apparently) have an offsetting opportunity to buy some new shares at $3.02 today, as 'compensation'. I say 'apparently' because my offer to take part in the SPP came because I am also a shareholder. No mention was made of the fact that I am a bondholder as well.

Did any bondholder who is not a shareholder get the SPP offer document?

For what it is worth I have applied for my maximum allowance. I am not sure how many I will get and I am not sure if $3.02 is really a bargain. It will only be a bargain if growth goes according to plan, and that is the risk that all shareholders take.

SNOOPY

[blackcap]

I

Did any bondholder who is not a shareholder get the SPP offer document?

e.

SNOOPY

Yes, my partner who is only a bondholder got a SPP offer document. She has applied for shares at $3.02.